After completing two appraisals in the past 10 days for buyers for all cash transactions, I wanted to throw down some thought about getting an appraisal when paying all cash in the Sacramento area. I think there is a time to do that and also a time to not do an appraisal. This isn’t legal advice, but here is my opinion:
Get an Appraisal during a Cash Purchase:
- If you feel like you’re overpaying (or your client is overpaying).
- If you think an appraisal can be used as a bargaining chip to lower the price.
- If the seller will not budge on the price and says, “show me an appraisal”. I’ve seen investors and owner-occupant buyers lower their purchase price by providing a credible appraisal to the seller. I had an investor client this year able to lower the price on two fire-burned houses by getting an appraisal.
- If your funding source wants to see something in writing.
- If you plan to rehab the house through NSP or another program, get an appraisal since it’s probably required already (I just finished an NSP appraisal yesterday).
- If you are an out-of-town buyer, make sure you’re not overpaying. Investors from the Bay Area and out-of-state do tend to overpay because they are less familiar with the market. Moreover, when investors are coming from areas with higher values, lower prices can seem incredibly attractive, which only breeds an environment for overpaying. But even the two appraisals I did recently with all cash local buyers were overpaying (see last paragraph).
Don’t Get an Appraisal during a Cash Purchase:
- If it’s painfully obvious you’re price is fair (just be sure).
- If you specialize in the neighborhood and know prices and values like the back of your hand, why bother?
- If the price is just a bit high, but it’ll kill the deal if you walk, it still might be worth it to go through with the purchase so long as the investment pencils out. That’s a very subjective point of course and everyone must ask how much they are willing to overpay for something.
Multiple Offers and Overpaying: I have noticed buyers tending to make offers higher than the sales price right now to get into contract. Since there has been a much lower inventory in the Sacramento area it seems like listings are hoarded by potential buyers. A byproduct of fewer listings has been buyers offering more than the contract price to beat out their competition and get into contract. All things considered, if paying cash, there is a risk of overpaying in a climate like this. I would simply say to be cautious and consider getting an appraisal if you think the number isn’t quite feeling right. The two houses I appraised recently in situations like this were in contract 10-15K too high.
Have you ever had an appraisal during an all cash situation? Why? Why not? What points or tips would you add to the lists above?